This Week in Summary 9/23/2022
Let’s talk inflation! Wholesale chicken whole wing prices increased +57% y/y during 2021 before declining -31% y/y for the YTD period ending 8/31/22. Basically, the problem is that demand for wings during 2021 was much higher than the demand for whole chickens and, unfortunately, there are only 4 wing pieces available per bird. Well, that’s a problem for a company like Wingstop which can’t just increase their menu prices by +57% to match their food cost inflation. So Wingstop got busy doing what American industry does best, they considered how to actually solve the problem of high wing prices. Their first step was to introduce new menu items which used other parts of the chicken besides the wings. Today, we see Wingstop selling Thigh Bites (dark meat) and now chicken sandwiches (breast meat) which allows them to buy whole birds, thus providing suppliers with the incentive to produce more chickens (which are now more profitable since the producers can sell all the parts of the bird, not just wings). But Wingstop did not stop there. Management is currently exploring the possibility of co-investing in a poultry production plant to learn the supply-side of the business. After that, management will consider building its own poultry production plant which could consistently provide ~20% of its system with wings at a cost ranging from $1.60 to $1.80 per pound (which looks pretty good when compared to the record cost of $3.22 reached during 2021). In other words, Wingstop has figured out that the way to lower wing prices is to increase supply. In our humble opinion, this is the best way to beat inflation as opposed to the commonly held belief that inflation can only be tamed by Fed rate hikes, ensuing recessions and higher unemployment. Rather, Wingstop’s new poultry plants would put people to work – that is, if they can afford to finance the project at these higher interest rates! For more information on Restaurant Research’s comprehensive report on Wingstop, please inquire here.
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